Michael Mundia Kamau
P.O. Box 58972
00200 City Square
Nairobi
Kenya

5th June 2004

                NATIONAL BANK OF KENYA

The protest march-out by shareholders of the National Bank of Kenya
Limited during the corporation’s Annual General Meeting of 4th June 2004, is a
pointer of severely eroded public confidence in the manner in which the
bank is being run. The public has indeed been receiving confusing signals
about the true state of the National Bank of Kenya and it is time that
definite and binding resolutions were adopted regarding the bank and it’s
future.

On the one hand, the public have noted a steady recovery at National
Bank of Kenya over the past two years in terms of rising profitability. Rising
confidence has been reinforced by the bank’s Balance sheet which
reflects total assets of KShs. 25 billion and total liabilities of KShs. 23
billion.
However, damning press leaks of a classified study done on the National
Bank of Kenya by the World Bank, reveal that all indications of recovery and
profitability are illusionary, and that the bank is deeply insolvent to
the tune of KShs. 24 billion (US $ 300,000,000). The World Bank report
further recommends the speedy implementation and conclusion of restructuring at
NBK, with a view to speedy privatisation . Despite the appearance of these
allegations in the press about four or five times over the past one
year, there have been no formal statements from either the National Bank
board or the government, lending credence to them or denying them. In the
absence of a formal reaction, the public has settled for the findings contained in
the damning World Bank report, as being the current and future status of
the bank.

Two perennially outstanding items on the bank’s Balance sheet also draw
considerable interest, and are what caused anger and eventual
shareholder boycott of the 35th Annual General Meeting of 4th June 2004. The two
are the bank’s overdraft with the Central Bank of Kenya which currently stands
at KShs. 5.5 billion, and a loan owed by the government to NBK of KShs. 12
billion. The management of NBK  has created the impression that the
future prospects of the bank are hinged to the settlement of both sums of
money. On the one hand, NBK claims that it is working steadily and consistently
at clearing the overdraft of KShs. 5.5 billion. The government on the
other hand, has continued to make empty pledges of clearing the amount it
owes NBK of KShs. 12 billion, a pledge that was once again repeated at the just
concluded 35th Annual General Meeting. No specific timetables have
however been set. What is further baffling is why both amounts cannot be
settled through transfers in the relevant government books of accounts, which
would leave NBK with a healthy credit of KShs. 6.5 billion. Does it require
parliamentary or executive approval, and why isn’t this being explained
to the public ? If it does require parliamentary approval, will the motion
introducing it suffer the misfortune of being shot down by dissenting
parliamentarians weary of the shaky ruling NARC coalition ?

Something crucial about NBK is being hidden from the public and
responsibility for this must be borne by both the Kenya government and
the NBK Board of Directors. Prior to the 35th Annual General Meeting, the
NBK Managing Director, Reuben Marambii, denied rumuors of the intended sale
of NBK at the throwaway price of KShs. 500,000,000. In his own assessment,
Mr. Marambii said that the going price of NBK in it’s current state, ranged
between KShs. 3 and 4 billion. This appears to be the reason behind
heightened speculative trading of NBK shares at the Nairobi Stock
Exchange, which have continued to hold steady despite the damning World Bank
report.
Heavy volumes of shares by Kenyan standards, continue to be traded with
regard to NBK. NBK shares toped trades in the financial segment in the
trading week ended 4th June 2004, with 320,000 NBK shares changing
hands. In one deal alone in the year 2003, one million NBK shares changed hands.
Strategic and speculative investors appear to be positioning themselves
for a kill. Further, the fate of NBK is expected to prominently feature in
the June 2004 state budget.

The boycott of the 35th Annual General Meeting by weary small scale
investors over non-payment of dividends, is justified to the extent of
double standards that currently prevail in the country as a whole.
Parliamentarians find no difficulty whatsoever in passing bills and
motions that hinge on the increment of their emoluments, yet they decry all
manner of technicalities and bureaucratic red tape when it comes to addressing
plights like NBK and the deplorable state of our roads. Supplementary
budget estimates were passed by the Minister of Finance in 2003 to cater for
the salary increment of parliamentarians, and NBK shareholders are
certainly asking why similar action could not have been taken regarding the fate
of the bank. Related to this is the delay in the passage of the key
Economics Crime Bill, which would speedily enable recovery of funds and assets
from numerous massive defaulters of NBK loans. Further, an NBK blanket
moratorium has not been declared on increased expenditure and payments, except the
payment of dividends. The remuneration of directors and the company
auditors, continue to be reviewed upwardly. A scandal involving
irregular and inflated purchase of computer software was unearthed at NBK, which
led to the dismissal of the Finance Director and other high ranking
managers. In light of this therefore, it was hoped that the NBK board would invoke
an extraordinary clause in the company Memorandum and Articles of
Association, and pay some benefit to long suffering and long patient shareholders.

The general state of corporate governance in Kenya is unimpressive and
calls for an infusion of freshness. The prospect of weath creation appears
bleak in the short and long term, despite the appointment of reputedly high
profile private sector individuals to head state corporations.
Insistence on
it’s own form of Pidgin English and converses freely and happily in a
mixture of Kiswahili, English and regional dialects, and in a country
that has adopted the use of table spoons and forks at meal times, instead of
the traditional knife and fork. For Corporate Kenya to grow and thrive,
recognition of several nations within one nation, must be made. Kenyans
do not part easily with money, and the prospect of this is made less
easier by attempting to use a Queen’s English approach. From all apparent
indicators available, Kenya will evolve like the United States of America, and
similarly mould as a nation and melting pot of diverse cultures and
backgrounds. Corporate Kenya is reflecting next to no cognisance of
this fact. Corporate Kenya is making no apparent effort to build and grow a
customer base from this evolving situation. As a further sign of
declining promise in the Kenyan economy, several Multi National Corporations have
in recent years rapidly switched the headquarters of their sub-Saharan
operations from Kenya to South Africa. In extreme cases, factories have
been shut down and sold, leaving Kenya as a retail outlet. The high profile
Africa visits of Presidents Clinton and Bush, and that of former first
lady Hillary Clinton, gave Kenya a wide berth. Hillary Clinton’s East
African visit was particularly comical in it’s evasion of Kenya, starting in
neighbouring Tanzania, bypassing Kenyan airspace to get to neighbouring
Ethiopia, and culminating in neigbouring Uganda. Business prospects
were certainly lost out in these high profile U.S. trips.

Legendary American entrepreneur Lee Iacocca, took over troubled and
deeply indebted American auto-maker Chrysler, and brought it back to healthy
productivity in 1983, eight years ahead of scheduled recovery plan.
Chrysler was meant to have been back on it’s feet in 1991, but Iacocca made this
possible ahead of time in 1983 by a blend of ingenuity and sound
management principles that included a blanket moratorium on increased expenditure
including his own. Iacocca’s accomplishment impressed America so much,
that he was asked to offer himself as the Democratic candidate for the 1988
U.S. presidential election, an offer he declined. It was justifiably
believed that Iacocca could do for America what he had done for the Chrysler
corporation. Corporate Kenya eagerly yearns for the wizardry of a Lee
Iacocca.



Michael Mundia Kamau